India’s power sector is in the middle of a perfect storm as its coal-fired power plants, responsible for generating 70 percent of India’s electricity, face a shortage in coal stockpiles.

As per data from the Central Electricity Authority (CEA), over half of the country’s 135 coal-fired power plants were left with an average of less than four days of coal stocks in September-end, down from the average of 13 days at the start of August.

Typically, industrial and domestic power consumption hits peak levels as India enters the festival season in October. Higher power consumption provides the opportunity for India’s economy to grow at a faster pace and bounce back to pre-COVID-19 levels.

However, due to the coal stockpile shortage and the potential power crisis, it seems that the Indian economy’s rebound may be stalled a while longer.

But how critical is the shortage? Will there be power cuts? We explain.

What Are the Reasons Behind Shortage in Coal Stockpiles?

Out of the 70 percent electricity generated by coal-fired power plants in India, nearly three-fourths is generated using domestically mined coal, while the remaining quarter of energy is produced using imported coal.

As economies open up in the rest of the world, the demand for importing power-generation fuels, such as coal, has risen.

This rise in demand has corresponded with a significant global price rise for coal.

For example, the price for coal imports from Indonesia, one of India’s major suppliers, which was at $60/tonne in March, has risen to a whopping $200/tonne in September, making imported coal an undesirable option for power plants. Moreover, a major power crisis in China has added to the increase in global prices.

Since imported coal has become expensive, there is an added pressure on power plants that use domestically mined coal.

State-run Coal India Ltd (CIL), the world’s top producer of the fuel, accounts for nearly 80 percent of India’s domestically mined coal. For instance, out of India’s total coal production of 716 million tonnes (MT) in 2020-2021, CIL had produced 596 MT.

However, due to flooding in India’s eastern and central states this monsoon, the production capacity of mines and transport routes were impacted.

India’s coal secretary, Anil Kumar Jain stated that currently, deliveries to power plants are short by between 60,000 and 80,000 tonnes a day.

This added burden (due to a decreasing dependence on imported coal) is despite the fact that production of coal in India in the six-month period of April to September 2021 has increased to 315 MT from 282 MT last year same period, showing an increase of almost 12 percent.

Notably, coal production during monsoons is typically low, which could account for the lower than required production. However, the power plants themselves had failed to build up their stocks prior to the monsoon season.

Will There Be Power Cuts?

Though power shortages are already emerging, while the gap between available electricity supply and peak demand widened to more than 4 gigawatts on Monday, 4 October, according to government data from power ministry, it is unlikely that power generation plants will completely run out of fuel.

Union Power Minister RK Singh recently said in an interview that in relation to the current level of coal stocks, the situation is way “beyond” normal, The Indian Express reported. He added that the shortage might last for the next five to six months.

However, he clarified that the shortage has not yet led to a power crisis. He added that there is no need for rationing (cutting power supplies for certain areas on a rotational basis) and insisted that the production will be able to meet the demand over the next few days.

“We are meeting the entire demand of the country and the demand is increasing,” Singh was quoted as saying by NDTV.

Who Is To Be Blamed?

According to CIL, thermal power plants are to be blamed for the crisis.

Coal stocks plummeted since August because power utilities allowed them to, a person aware of the development told Hindustan Times, and added that the matter was flagged to appropriate authorities.

CIL said in a statement that coal stocks were at a comfortable level of 28.4 MT at the beginning of the financial year.

Even four months later, coal stock at power utilities was 24 MT, at the end of July, which was at par with the five-year average. It was only in August that coal stock at power plants fell by over 11 MT, as production rapidly increased due to an increased demand.

CIL was quoted as saying on 29 September, “Had the power utilities maintained the CEA-prescribed normative stock of 22 days the low coal stock situation could have been averted,” Hindustan Times reported.

In an attempt to address the shortage, the Ministry of Coal announced on Tuesday, 5 October, that coal mines that produce coal solely for their own use, known as “captive mines”, will now be allowed to sell 50 percent of their annual output in the open market.

Pushing for higher domestic production of coal, the Mines and Minerals (Development & Regulation) Amendment Act was amended to this effect.

Is the Coal Stockpile Shortage Intentional?

Objecting to the reports of the shortage, Chhattisgarh-based lawyer Sudiep Shrivastava said in a series of tweets, “Please don’t buy government leaked or planted stories about massive coal shortage in power plants. It’s a trap to set narrative to amend Coal Bearing Area (Acquisition and Development) Act 1957, in favour of private coal miners in next session.”

Peak electricity demand had recorded an all-time high of 200.57 gigawatts (GW) on 7 July, the power ministry had informed.

Srivastava explains that India’s peak demand is still lower than 2.0 lakh megawatt (MW), since peak touches for a short time, while the average demand is around 1.5 lakh MW.

Mentioning the rising generation capacity of solar and hydel energy (90,000 MW) and 39,000 MW from wind energy, he adds that India could need around 1 lakh MW from coal thermal power plants, which would loosely require 500 million tonnes of coal in a year, as recommended by the CEA.

Now, CIL itself produces around 600 MT coal, which debunks cruciality of the coal stock shortage. Notably, lower coal stock levels do not necessarily mean a shortage in coal production in the country.

The pandemic had led to a fall in investment of 15 percent in the energy sector in 2020, Power-Technology reported.

This worsened the financial strain within India’s electricity distribution companies, due to which the power ministry is now asking power companies to build up stockpiles.

Moreover, Srivastava warns, “The narrative of Coal Shortage is being created to create an atmosphere of desperation in which the Coal Bearing Areas (Acquisition & Development) Amendment Bill, 2021, which is highly draconian, would be passed in Parliament in next session.”

The Bill, once passed, will exempt private players from conducting social impact assessments, from obtaining consent of the majority of population and from paying adequate compensation to affected people before land is acquired for coal mining, Newsclick reported.

Further, provision of the land acquisition bill enacted in 2013, popularly known as LARR Act, 2013, will no longer apply to corporates when they begin mining coal from lands acquired through bids.

Srivastava adds that along with the “draconian” Bill, dilution of environment and forest norms for coal mining will also take place.

The global high prices which result in lower imports, flooding which affected production and transportation, and policy failure between the coal producers and coal-fired plants have resulted in the current coal stockpile shortage.

Power rationing could be an easy solution for the government if the situation arises; though it will further hamper economic growth.

Government ministries and industry also have the option to again divert supplies away from industrial users, such as aluminum and cement makers, to prioritise power generation, avoiding power cuts.

But again, non-power sector companies will be left with the option to either curb output or pay high prices for imported coal, Bloomberg reported.

Global analytics company CRISIL said, “In the near term, the supply crunch is expected to persist with the non-power sector facing the heat as imports remain the only option to meet the demand, but at rising costs.”

Withdrawing from fears of a potential energy crisis, it added, “Coal inventory at thermal plants will improve only gradually by March next year. For this fiscal, it will hover around 10 days compared to the two-year average of around 18 days.”

(Courtesy: The Quint.)